MIT Sloan Management Review Article on How to Turn Professional Services Into Products

Product-based business models can help services firms achieve greater scale and profitability. But the transformation can be challenging.

Product management is one of the fastest-growing roles in business, having gained increased scope and importance in Silicon Valley. While product managers used to be hired almost exclusively by technology companies, they are now being recruited in growing numbers by service-oriented businesses as well, with firms such as Accenture, Chase, JPMorgan, Optum, and Vanguard adding product management functions in the past few years. Why are services companies looking to add product capabilities to their organizations?

Professional services firms, which span a wide range of sectors, including IT, legal, marketing, and tax and accounting services, face two major growth challenges. Owing to the significant human involvement in service delivery, their gross margins are low, and their head counts scale linearly with increases in revenue. Product companies enjoy much higher growth margins and revenue per employee. This explains why startups that offer software-as-a-service products are valued at six to eight times their annual revenues, whereas startups that offer project-based services are valued at one to two times their annual revenues.

About the Author

Mohanbir Sawhney is the associate dean for digital innovation, director of the Center for Research in Technology & Innovation, the McCormick Foundation Professor of Technology, and a clinical professor of marketing at Northwestern’s Kellogg School of Management. Disclosure: The author serves on the advisory board of MarketEngine and on the board of directors of Bahwan CyberTek.

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